Commentary: Madoff scam seemed hard to miss

Apparently, it took a gigantic swindle like the pyramid scheme allegedly run by Bernard Madoff to get SEC Chairman Christopher Cox to admit that the Securities and Exchange Commission has fallen down on the job. Trouble is, Mr. Cox himself has been instrumental in turning Wall Street's watchdog into a meek lapdog.

Appointed in 2005, Mr. Cox's tenure has been marked by a failure to increase the size of the enforcement budget and a resulting see-no-evil approach to the shady doings on Wall Street. "You only have to look at his history on (Capitol) Hill to see that he has been a staunch deregulator and a foe of investor rights," James Coffman, former assistant director of enforcement at the SEC, said last week. Arthur Levitt, a former SEC chairman, reported to Congress in October that the agency had undergone "a demoralization of the enforcement staff" in the last few years.

That's how the SEC was able to miss the Madoff scam, which has left mouths agape and portfolios empty from New York to South Florida. Now that investors have lost $50 billion, by Mr. Madoff's own reckoning, the SEC chairman wants the SEC investigated. Welcome to the nightmare, Mr. Cox. Where were you when the lights went out?

Before going further, it's worth contemplating the epic proportions of this colossal scam. By any measure, $50 billion is a staggering amount of money. It would require losing $1 million per day – every day – for 137 years to realize such a huge loss. Considering that Mr. Madoff was operating for at least a few years in a bull market, it's hard to see how he could have lost $50 billion. It's even harder to see how he got away with his scheme for so long without regulators catching on – unless they weren't trying.

Some would have the public believe that Mr. Madoff was such a wizard that he couldn't have been caught. Typical of that attitude is the "stuff happens" response to the scandal by former SEC chairman Harvey Pitt: "There were a lot of sophisticated people who were duped, and that happens a great deal when you've had somebody decide to be unscrupulous."